With reference to E.U. Commission Approves Billions in Aid for 2 Italian Banks by Jack Ewing on 25 June 2017 in the New York Times.
On Sunday, the European Commission took quick action when two small Italian banks, Banca Popolare di Vicenze and Veneto Banca, were heading towards bankruptcy. To avoid Italian residents losing confidence in the banking system the E.U. allowed the Italian government to bailout the two banks for billions.
The plan is 4.8 billion euros in cash and 12 billion in guarantees of depositors. The two banks only account for 2 percent of Italian deposits.
The reason to go this route is because the majority of the Italian banks are consisted of problem loans and very little capital. Fear if these two banks fail it will cause a panic. Italians might lose faith in the banking system and could cause people to withdraw their money and banks will shut down.
The investors of this bank in senior bonds will keep their investment, however, junior bond investors will lose theirs as well as shareholders.
Despite this large …